New 'anxieties' over plans to raise CGT

19 May 10

Unease over government plans to raise the rate of capital gains tax for non-business assets seems to be growing.

In particular over such issues as indexation and company share schemes.

The rate to which CGT, currently at 18 per cent, will rise has been a matter for speculation, although the new government has suggested that the tax due on the profits made from the sale of non-business assets could climb to match the higher rates of income tax. In other words, 40 per cent or even 50 per cent.

The present profit threshold at which CGT is triggered is £10,100, but this may, too, be altered, coming down as low as £2,000.

The change will affect those who own second homes, buy-to-let properties or portfolios of shares.

When the last Chancellor, Alistair Darling reduced the rate of CGT to 18 per cent two years, indexation was also removed.

Indexation took account of any increase in the value of an asset generated by inflation, so that the seller only had to pay tax on the actual return on their investment.

Should the rate climb to 40 per cent, there are worries that it would represent an unfair tax charge if indexation were not re-introduced and inflation, now up to 3.7 per cent, were not accounted for.

A Treasury spokesman said that there is a "range of possible options" on CGT and that "no decision has been taken on one option".

Another area where voices of concern have been raised is the consequences that any change may have on company share schemes.

A share ownership organisaton, ifs ProShare, has contacted Treasury minister, Mark Hoban, asking if the government intends to introduce an exemption for such schemes.

Supermarket chain, Asda has said that some 15,000 of its employees will benefit from a payout of around £47 million as part of the company's three-year save-share scheme.

Some employees could make as much as £8,000 profit from the scheme, which, if the threshold is lowered, could make them liable to the new CGT charge.

Julie Richardson, of ifs ProShare, commented: "The principle of investing in the company you work for is a sound one. We would not like to see this undermined by potentially unintended consequences of CGT changes."

The Treasury responded by saying that no ruling has yet been made on the status of company share schemes or their possible exemption.